Business Strategy and the Environment

Bus. Strat. Env. 24, 309–325 (2015)

Published online 4 December 2013 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/bse.1819

Measuring Corporate Environmental Performance –

Stakeholder Engagement Evaluation
Asit Bhattacharyya1* and Lorne Cummings2
1
The University of Newcastle, Accounting and Finance, Callaghan, Australia
2
Macquire University, Sydney, New South Wales, Australia

ABSTRACT
As environmental protection has become a critical factor in achieving sustainable develop-
ment, organizational stakeholders are becoming increasingly interested in corporate envi-
ronmental performance (CEP). Many organizations evaluate their CEP but few academic
studies have sought to evaluate it. This study undertakes CEP evaluation using an environ-
mental performance measurement (EPM) model consisting of four managerial performance
indicators (MPIs: organizational system, stakeholder relations, operational countermeasures
and environmental tracking) and two operational performance indicators (OPIs: inputs and
outputs). Principal component analysis (PCA) and confirmatory factor analysis (CFA) are
used to test model reliability and construct validity. The relationship between MPIs and OPIs
has also been analysed using correlation coefficients among the six indicators. Results indi-
cate that there were multiple dimensions to measure under an organizational system as
opposed to ideally a single factor. No single model can be effectively used due to different
geographical locations and differences between companies from various industry sectors.
EPM is more dependent on its organizational system and stakeholder relations than opera-
tional countermeasures and environmental tracking. Copyright © 2013 John Wiley & Sons,
Ltd and ERP Environment.

Received 28 March 2013; revised 01 July 2013; accepted 11 July 2013

Keywords: corporate environmental performance; MPI; OPI; Australian companies

Introduction

‘A
S ENVIRONMENTAL PROTECTION BECOMES A CENTRAL FACTOR IN ACHIEVING SUSTAINABLE DEVELOPMENT VARIOUS
corporate stakeholders including consumers, shareholders, regulators, creditors, fund managers, envi-
ronmental groups and the general public are becoming interested in corporate environmental perfor-
mance (CEP). To meet this demand and moderate stakeholder pressures, many companies have
reported environmental information through a variety of reporting media’ (Xie and Hayase, 2007, p. 148; Ilinitch
et al., 1998). However Kokubu et al. (2002) indicated that the information disclosed by various companies differs
in terms of content, boundary, style and complexity. Thus it is difficult for stakeholders to judge companies’ envi-
ronmental performance and understand which are comparatively better or worse in protecting the environment

*Correspondence to: Asit Bhattacharyya, The University of Newcastle, Accounting and Finance, Callaghan, Australia. E-mail: asit.bhatta@newcastle.
edu.au

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment
310 A. Bhattacharyya and L. Cummings

based on information disclosed (Xie and Hayase, 2007). ’Moreover collecting, sorting and comparing environmen-
tal information from various channels are all tedious and time-consuming processes. This has led to an increasing
demand for third-party organizations to independently and impartially evaluate CEP’ (Xie and Hayase, 2007, p. 149),
which in turn may lead to increased accountability.
Environmental performance can be defined as ‘the results of an organisation’s management of its environmental
aspects’ (ISO, 1999) or more precisely ’is the totality of a firm’s behaviour toward the natural environment (i.e. its
level of total resource consumption and emissions)’ (Wagner et al., 2002). Companies implementing International
Environmental Management Standard ISO 14001 certifications can expect to improve environmental performance,
as an environmental management system (EMS) is a structured approach to addressing the environmental bottom
line. Schaltegger and Synnestvedt (2002) argue that economic outcomes are influenced not merely by the level of
environmental performance, but the level at which environmental management is achieved.
Understanding environmental performance will therefore contribute to developing a more thorough EMS. It will
enable organizations to develop strategies to reduce environmental impact and associated organizational costs, if
proper systems exist to measure performance. This will in turn increase the long term value of the firm, thereby
increasing competitiveness, profitability and share price. Understanding environmental performance will also help
law makers implement effective legislation and enforcement mechanisms.
Most research work to date in the area of CEP measurement has been undertaken in the USA, Europe and Japan.
Few academic studies have been undertaken in this area in Australia, leading to the conclusion that the process of mea-
suring CEP is still in its developmental stage (Curkovic, 2003). This is at least partly due to the lack of academic research
in this field (Kolk and Mauser, 2002). A range of measures have been adopted by various organizations to evaluate CEP,
but existing measures and ratings have the inherent risk as pointed out by Ilinitch et al. (1998) that, as ’…rankings are
based partly upon reputation and reputation is based partly upon rankings’, this may inhibit a stakeholder’s ability to
interpret such data and make purposeful comparisons across companies, and may even confuse the public and reduce
the credibility of these measures and ratings (Ilinitch et al., 1998, p. 385; Xie and Hayase, 2007, p. 149).
The objective of this paper is to seek the extent to which companies in various industries measure environmental
performance using various indicators developed for third-party performance evaluation. An operational environ-
mental performance measurement (EPM) model from previous study (Xie and Hayase, 2007) was adopted in this
study. The model consists of environmental management performance (EMP) and environmental operational per-
formance (EOP). EMP is measured by four management performance indicators (MPIs), (i) organizational system,
(ii) stakeholder relations, (iii) operational countermeasures and (iv) environmental tracking, whilst EOP is measured
by two OPIs, inputs and outputs. Xie and Hayase (2007) noted that the purpose of the model was a preliminary ex-
ploration into operationalizing the constructs of the CEP measurement framework and the need to improve future
studies. They commented that the robustness of the constructs should be tested by using a larger sample size and
more industry involved empirical analysis. Using data from 150 Australian companies within the chemical, indus-
trial engineering and pharmaceutical & biotech industries, the study empirically tested the construct reliability of the
EPM model. This current study tested the robustness of these constructs using a larger sample size (150 companies)
compared with the 58 used by Xie and Hayase (2007), drawn from three industries as opposed to one.
This paper is organized as follows. First the theoretical foundation of the study is discussed then a review of the
previous literature addresses the construct of EPM models. The next section establishes and operationalizes the
EPM model. The study then outlines the data collection process and presents the results of empirical tests. The final
section discusses the implications of the results and provides conclusions.

Theoretical Foundation of the Study

The theoretical structure of numerous accounting studies relies on the legitimacy theory framework provided by
Lindblom (paper presented at the Critical Perspectives on Accounting Conference, New York, 1993) to explain why man-
agers willingly release social and environmental information. This paper examines the Australian chemical, indus-
trial engineering and pharmaceutical & biotech industries, for which environmental performance is a prominent
component of organizational legitimacy.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 311

Legitimacy is a condition or a status that exists when an entity’s value system is congruent with the value system
of the larger social system of which the entity is a part (Lindblom, paper presented at the Critical Perspectives on
Accounting Conference, New York, 1993, p. 2). Legitimacy is a generalized perception or assumption that the actions
of an entity are desirable, proper or appropriate within a socially constructed system of norms, values, beliefs and
definitions (Suchman, 1995, p. 574).
Suchman (1995) articulated three types of legitimacy, pragmatic, moral and cognitive, which co-exist and strengthen
one another. Pragmatic and moral legitimacy are most relevant to this study. Pragmatic legitimacy dynamics are often
observed with stakeholders who directly interact with an organization. Pragmatic legitimacy behaviours may focus on
delivering favourable outcomes and stakeholder interests. The dynamics may focus on incorporating tools into policy
making and/or adopting component measures of performance (Suchman, 1995, p. 578). By addressing stakeholder ex-
pectations, companies can obtain pragmatic legitimacy. It is a challenge for the organization to influence individuals’
calculations and persuade key stakeholders and the wider society about the usefulness of its output, procedures, struc-
tures and leadership behaviour (Ashforth and Gibbs, 1990), but can be accomplished through meticulous stakeholder
management by inviting stakeholders to participate in corporate decision making or through influential public rela-
tions. Some authors (Mitchell et al. 1997; Savage et al. 1991) suggest prioritizing powerful vocal stakeholders, but others
(Carroll and Buchholtz, 2006; Freeman et al., 2010) warn managers not to overlook the importance of more vulnerable
stakeholder groups for a company’s legitimacy in the longer term.
Moral legitimacy depends upon the positive evaluation of the activities of the organization relative to its broader so-
cial contract. Suchman (1995) stated that moral legitimacy ’rests not on judgments about whether a given activity ben-
efits the evaluator but on judgments about whether the activity is "the right thing to do"’. Palazzo and Scherer (2006)
believe that moral legitimacy results from a conscious moral judgement on ’the organisation’s output, procedures,
structures, and leaders’ (p. 73). Environmental public interest groups, small investors and the general public who are
concerned with environmental performance evaluate organizational legitimacy from a moral perspective. These groups
remain important sources of legitimacy because of their potential to unite and challenge organizational legitimacy.
Moral legitimacy is sometimes based on the evaluation of outputs and consequences of organizational action.
Environmental reporting (ER) is seen as one strategy by which companies seek approval of their activities from
society. Legitimacy theory suggests that ER provides an important way of communicating with stakeholders to
convince them that the company is fulfilling their expectations, even when actual behaviour varies from some of
these expectations (Branco and Rodrigues, 2008).
Suchman distinguishes different strategies and related tactics for securing legitimacy status by recognizing three
broad aspects of legitimacy, namely gaining, maintaining and repairing. Following Mobus (2005), this paper uses
legitimacy dynamics and measures related to maintaining pragmatic and/or moral legitimacy. Maintaining legiti-
macy is a continuous process and requires less effort than gaining it initially. In this phase, ’once conferred by
the stakeholders, legitimacy tends to be taken largely for granted’ as constituents’ scrutiny is relaxed; and they are
satisfied ’with evidence of ongoing performance and with periodic assurances of ‘business-as-usual’ (Ashforth
and Gibbs, 1990, p. 183). However, legitimacy is a dynamic construct, as community expectations change over time.
An organization could lose its legitimacy even if it has not changed its activities from those previously deemed
acceptable (Deegan et al., 2002, pp. 319–320).

Relevant Literature
Various authors have addressed the measurement and evaluation of CEP. The studies can be divided into two catego-
ries. The first focuses on developing EPM models for effective internal management decision making, and constructing
appropriate environmental performance indicators (EPIs). The second attempts to develop an EPM suitable for internal
management decision making as well as third party, seeking to make the model comparable across companies from
different sectors or industries. The various EPM models established by researchers are outlined in Table 1.
Most EPM models focus on helping companies develop EPIs for internal management and external reporting.
Whilst these EPM models and EPIs are useful and valuable for business managers to identify areas of success
and failure, and to make corresponding decisions (Azzone et al., 1996), they are not appropriate for drawing

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
312 A. Bhattacharyya and L. Cummings

Authors (year) Purpose Dimensions of EPM model

Wells et al. (1992)
Wolfe and Howes (1993)
Eckel and Fisher (1992)
Metcalf et al. (1995)
Azzone et al. (1996)
Azzone and Noci (1996)
Young and Welford (1998)
Thoresen (1999)
European Green Table
(1993; in Welford, 1996)
Ilinitch et al. (1998)
Jung et al. (2001)
Curkovic (2003)
Xie and Hayase (2007)
Sharma (2009)
Wagner (2009)
Hall and Wagner (2012)
internal management
internal management
internal management
effective management
external-oriented reporting
internal decision making
internal management
internal management
third-party evaluation
third-party evaluation
third-party evaluation
third-party evaluation
third-party evaluation
third-party evaluation
third-party evaluation
third-party evaluation
(1) Process improvement; (2) environmental results;
(3) customer satisfaction.
Ditto.
(1) Policy and objectives; (2) performance measures; (3) systems to
collect and report information; (4) on-going monitoring.
(1) Environmental management system; (2) EPM system.
(1) State of the environment; (2) corporate environmental policy;
(3) environmental management system; (4) environmental impact
of products and processes.
(1) External environmental effectiveness; (2) company’s
environmental efficiency; (3) company’s ‘green’ image;
(4) firm’s environmental flexibility.
(1) Environmental policy; (2) environmental management system;
(3) environmental impacts of processes products/services.
(1) Product lifecycle performance; (2) management system
performance; (3) manufacturing operations performance.
(1) Environmental management EPIs; (2) facility and operation EPIs.
(1) Organizational system; (2) stakeholder relations;
(3) regulatory compliance; (4) environmental impact.
(1) General environmental management; (2) input; (3) process;
(4) output; (5) outcome.
(1) Strategic system; (2) operational system; (3) information system;
(4) results.
(1) Organizational system; (2) stakeholder relations; (3) operational
countermeasures; (4) environmental tracking; (5) input; (6) output.
(1) Organization design; (2) information and benchmarking;
(3) environmental impact reduction.
(1) Stakeholder pressure; (2) process innovation; (3) product
innovation; (4) input.
(1) Organizational system; (2) regulator; (3) public; (4) markets;
(5) input; (6) output; (7) risks; (8) image.

Table 1. Summary of previous studies on environmental performance measurement model

Adapted from Xie and Hayase (2007).

comparisons across companies (Young and Welford, 1998) because there is a lack of agreement on what and how to
measure. Although the necessity and significance of constructing an EPM model suitable for comparison was advo-
cated by various authors, studies have seldom been conducted in this field (Azzone et al., 1996; Curkovic, 2003;
Metcalf et al., 1995). Kolk and Mauser (2002) commented that a few studies have focused on EPM in a broad sense,
but there was no consensus on what, how and where to measure. Common dimensions of CEP were not addressed
by any single method formal theoretically or empirically (Ilinitch et al., 1998).
Few studies have sought to establish comparable EPM models. The European Green Table (EGT) was the earliest
effort in this area. The model was based on self-assessment. Welford (1996) commented that this EPM model is
able to enhance internal decision making and provide the elements for consistent communication with external
stakeholders. An integrated matrix consisting of process/outcome and internal/external axes was developed by
Ilinitch et al. (1998). The matrix embraces four dimensions: organizational system, stakeholder relations, regulatory
compliance and environmental impact. Afterwards they found empirically that there are five CEP dimensions since
stakeholder relations are two dimensional. Xie and Hayase (2007) proposed the use of the environmental intensity
change index (EICI) as a measure of OPIs to enable third-party EPM comparable across companies from different
(sub-) sectors. Although empirical tests confirmed that the EICI and the evaluations based on it are comparable
across companies from different sub-sectors, it is not feasible for implementation because the required data are

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 313

not all available. Lo (2010) evaluated the performance of sustainable firms through the perspectives of exploring re-
alistic issues. The study examined the relationship between corporate sustainability and operating performance. It is
found that sustainable firms are partially rewarded for their sustainable development strategies. It also found that
investors have not considered the value of a firm’s sustainability.

The EPM Model

Adapting Xie and Hayase (2007), this study uses a hierarchical framework identifying the key factors that character-
ize CEP measurements (Figure 1). In this study CEP consists of EMP and EOP. Further, it has been hypothesized
that EMP be measured by four MPIs, (i) organizational system, (ii) stakeholder relations, (iii) operational counter-
measures and (iv) environmental tracking, and EOP be measured by two OPIs, inputs and outputs. These indicators
and their measurement items could cover the entire range of activities critical to CEP.
Following Ilinitch et al. (1998) and Xie and Hayase (2007), the EPM model includes two dimensions: EMP mea-
suring environmental management processes, and EOP measuring environmental results. Almost all previous EPM
models, apart from that of Ilinitch et al. (1998), include these two dimensions. MPIs and OPIs are meaningful and
feasible for evaluating individual CEP. EMP and EOP are two interdependent aspects of CEP. MPIs are leading in-
dicators of EOP because the company can tell whether appropriate management systems are in place before it sees
whether these systems are having the desired effects (Xie and Hayase, 2007; Wells et al., 1992; Wolfe and Howes,
1993). Azzone et al. (1996); Jung et al. (2001) and Tyteca et al. (2002) have outlined the importance of MPIs. The
significance of MPIs was especially emphasized to outside stakeholders such as consumers and shareholders by
Ilinitch et al. (1998). Authors such as Olsthoorn et al. (2001) argue that OPIs should be combined with MPIs and
ECIs, as they are not sufficient on their own to measure CEP.

Operationalization of the EPM Model

Adapting Xie and Hayase (2007), the study’s EMP model is operationalized as follows.
1. Organizational variation that is designed to deal with environmental issues is considered as an organizational
system. The issues include are environmental policy, targets management system, employee training, organization

Figure 1. Conceptual EPM model

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
314 A. Bhattacharyya and L. Cummings

environmental accounting and auditing. Organizations set up environmental objectives and policy to address
some fundamental issues such as the range of responsibility the company will take or level of responsiveness.
Metcalf et al. (1995) suggest that the environmental unit within the company should be led by an accommodating
individual and be staffed with conversant people, as it is an important constituent of an organizational system.
The foundation and support for forming environmental policy and targets within the company is provided by envi-
ronmental accounting and auditing.
2. The interaction between the organization and its various stakeholders is referred to as the stakeholder relation-
ship (Ilinitch et al., 1998). Ilinitch et al. (1998) noted that relationships with stakeholders can have either positive
or negative effects on CEP. The study limits its concentration to what an organization should carry out to deal
with stakeholder relationships as a proactive player in environmental management as accomplished by Xie
and Hayase (2007). Specifically, the study focuses on environment-related contributions to local communities
and environmental reporting. Greater enthusiasm to communicate environmental actions with stakeholders
may be represented by more reporting (Ilinitch et al., 1998). Although there may be multiple motives for corpo-
rate social responsibility and reporting, it should be regarded as a positive approach to stakeholder relations, as
contributions will improve the environmental consciousness of the local population, which in turn improves the
local environment (Xie and Hayase, 2007).
3. The actions and measures adopted by a company in its ordinary operations to reduce its environmental load are
referred to as operational countermeasures. Previous EPM models have rarely drawn in this indicator. Environ-
mentally concerned process/product design and checks on supplier’s CEP were considered by Curkovic (2003)
in his model. Xie and Hayase (2007) used three categories of countermeasures, namely those against (1) global
warming, (2) environmental issues in process/product design and (3) environmental risk. This paper includes all
available actions and measures, which are then classified into the three above countermeasure categories.
4. The action taken by an organization to track its environmental consequences is referred to as environmental
tracking. An organization will not be able to offer environmental information to its stakeholders without tracking,
measuring and evaluating its environmental consequences. This process is the basis for informed decision mak-
ing of an organization (James, 1994).
The four MPIs depicted above are all qualitative measures. To assign numerical values to them, following Xie and
Hayase (2007), we relied upon semantic differences based on corporate judgement. Quantitative metrics are used to
measure OPIs. Ditz and Ranganathan (1997) suggested four key classes of OPIs from the resource inputs and
outputs of a company to draw significant comparisons across organizations and even industries. These categories,
being material use, energy consumption, non-product output and pollutant releases, might capture the common
characteristics of organizations from different segments. Further we followed the hypothesis of Xie and Hayase
(2007) that EOP be measured by two OPIs: inputs and outputs.
5. Inputs refer to the resources (e.g. water and paper) and energy (e.g. oil electricity gas) used or consumed by a
company. It is assumed that the more resources/energy the company uses, the more wastes/pollutants it may
produce. India lacks natural resources/energy, therefore taking account of the efficiency of using resources/
energy in EPE can inspire the organization to improve its overall production competence (Xie and Hayase, 2007).
6. Outputs refer to the wastes and pollutants generated by business activities, including industrial wastes disposed,
water discharged, pollutants released to the air (CO2, SOx and NOx) and water pollution (COD or BOD).

Method

Survey Design
The survey questionnaire was structured and divided into two parts. Part I compiles the respondents’ personal and
organizational details. Part II consists of MPIs and OPIs. Similar to Xie and Hayase (2007), MPIs were further
subdivided into four groups: (1) organizational system (OS) (questions 2–6); (2) stakeholder relations (SR) (ques-
tions 7–11); (3) operational countermeasurement (OCM) (question 12) and (4) environmental tracking (ET) (question

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 315

13). Each group consists of various measurement items. OPIs were subdivided into two groups of inputs (question
14) and outputs (questions 15–17), and each group also consisted of various measurement items. The questions are
drawn and adapted from Xie and Hayase (2007). The measurement items for each indicator drawn from previous
studies (Curkovic, 2003; Ilinitch et al., 1998; Nakao et al., 2007; Xie and Hayase, 2007) are listed in Table 2. Alto-
gether there are 36 measurement items for the MPIs and 11 for the OPIs.
Respondents were requested to write down the actual amount of input used and output released by their compa-
nies during a particular accounting year for the 11 OPI items. Following Xie and Hayase (2007), the study designed
questions for the 36 MPI items (see Table 2). The survey did not use perceptual questions for the MPI items. In
order to increase the degree of objectivity of the respondents’ answers to the questions, the survey enquired about
the concrete and objective situations of relevant environmental management processes (see details in Inputs and
Outputs in Table 2). The survey used questions for operational countermeasures and asked respondents to assess
how proactive their companies were in implementing the countermeasures on a five-point Likert scale.

Data Collection
The questionnaire survey was conducted in Australia through a professional data collection agency, Market Xcel
Data Matrix Pvt Ltd, which had the necessary expertise to facilitate a higher response rate. A final sample size of
150 (from chemical, industrial engineering and pharmaceutical & biotech) was ultimately received and used in
the study. These industries were selected based on the social perceptions that organizations operating in these
industries are more likely to be considered environmentally sensitive (Elkington, 1994). Industry classification
and companies were selected randomly from the list of companies provided by the electronic database DataStream
Advance 4. The list of companies was classified according to their industry membership. An industry-wide list of
selected companies along with a questionnaire was supplied to Market Xcel Data Matrix Pvt Ltd for collecting infor-
mation from Australia. This data collection company maintained data originality and independence by following the
International Code on Market and Social Research (ICC/ESOMAR) guidelines (www.esomar.org) and maintained
international delivery standards. To maintain data originality and reduce the high risk of a low response rate, the
author was personally present in Australia during the data collection period. The firm randomly selected partici-
pants who were middle/senior level corporate/branch managers of selected companies within the selected indus-
tries. The firm delivered questionnaires to the selected participants and collected the completed questionnaires
after a period of approximately one week by post/over the phone from the participants.

Point Assignment to the Selected MPI Items

In order to perform statistical analysis we had to assign numerical values to the selected MPI items. As described pre-
viously, the items for operational countermeasures can be assigned values on a five-point Likert scale. For the other MPI
items a rating system was developed similar to that of Metcalf et al. (1995) and Xie and Hayase (2007). After this oper-
ation a data set for the MPI items were available. The descriptive statistics of these items are reported later in Table 4.

Data Analysis Procedure

The data analysis for this study was undertaken using a three step procedure. Step 1 related to the descriptive statistics
and involved checking participants’ mean responses and standard deviation of all survey questions. The findings enabled
the exploration of responses to each survey question and the skewness (symmetry) and kurtosis (peaked or flat) of the
data. Distribution was identified as normal if the skewness and kurtosis values did not exceed 1.96 (Hair et al., 1998).
Step 2 involved factor analyses with varimax rotation on the four measures of EMP and two measures of EOP.
Factor analysis enables the researcher to explore the underlying dimension within each variable mentioned above
and understand the percentage of variance or information explained under each dimension (Gnanadesikan,
1997). Following factor analysis, in step 3 a correlation table is presented to analyse the covariance between the
factors including regression analysis on the relationships between CEP measures as modelled in Figure 1. Regres-
sion analysis enabled the researcher to understand the individual contribution of EMP and EOP measures to CEP.
The model was tested using AMOS Version 18 software. AMOS software is increasingly used in social science

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
316 A. Bhattacharyya and L. Cummings

Indicators and measurement items Content outline of the question

Organizational system (Q. 1–6)

SI1 Target Types of target
SI2 Adoption scope of ISO 14001 Company’s scope involved in ISO 14001
SI3 Adoption time of ISO 14001 Time for the first adoption of ISO 14001
SI4 Environmental organization Current situation
SI5 Environmental head’s position in the company Level of the environmental head’s position in the company
SI6 Environmental accounting Company’s scope involved in environmental accounting
SI7 Environmental auditing Company’s scope involved in environmental auditing
SI8 Environmental education Scope and frequency of environmental education
Stakeholder relations (Q. 7–11)
RI1 Environmental disclosure scope Company’s scope involved in environmental disclosure
RI2 Environmental disclosure content Types of environmental information disclosed
RI3 Environmental disclosure method Media used to disclose environmental information
RI4 Contributions to local communities Types of contribution activity
Operational countermeasures (Q. 12) How proactively is your company implementing this measure?
Countermeasures against global warming
CI1 Using renewable energy
CI3 Installing energy-saving equipment
CI4 Using environmentally friendly cars
Countermeasures against environmental issues in process/
product design
CI5 Reducing reusing and recycling wastes
CI6 Reducing the use of package materials
CI7 Implementing environment concerned design
CI8 Implementing environment marketing
CI9 Managing and recycling used products
CI10 Expanding product lifetime
CI11 Checking suppliers’ EMSs
Countermeasures against environmental risk
CI12 Establishing risk management system
CI13 Reducing the use of chemicals
CI14 Measuring discharge of toxic chemicals
CI15 Training to deal with emergency regularly
CI16 Inspecting toxic-related tanks/pipes regularly
CI17 Specifying explicit responsibilities
CI18 Making out risk management manual
Environmental tracking (Q. 13)
TI1 Tracking scope of energy use Company’s scope tracking energy use
TI2 Tracking scope of resource use Company’s scope tracking resource use
TI3 Tracking scope of general wastes Company’s scope tracking general wastes
TI4 Tracking scope of industrial wastes Company’s scope tracking industrial wastes
TI5 Tracking scope air and water pollution Company’s scope tracing water pollution
TI6 Tracking scope of greenhouse gases Company’s scope tracking greenhouse gases
Inputs (Q. 13, 14) Amount consumed in 2005–2006
II1 Oil use (kl)
II2 Gas use (m3)
II3 Electricity use (kW h)
II4 Water use (m3)
II5 Paper use (t)
(Continues)

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 317

Table 2. (Continued)
Indicators and measurement items Content outline of the question

Outputs (Q. 15–17)

OI1 Industrial waste disposal (t) Amount disposed in 2005–2006
OI2 CO2 emission (t) Amount emitted in 2005–2006
OI3 SOx emission (kg) Same
OI4 NOx emission (kg) Same
OI5 BOD (kg) Amount in 2005–2006
OI6 COD (kg) Same

Table 2. The MPIs, OPIs and corresponding measurement items included in the questionnaire
Adapted from Xie and Hayase (2007).

research as an add-on program to the statistical package SPSS. It enables researchers to specify and measure latent
or unobserved constructs through their measured indicators (Byrne, 2009).

Responses to Scale Items

Responses to statements under organizational system (SI1–SI7 – questions 1–7), stakeholder relations (RI1–RI4 –
questions 8–11) and environmental tracking (TI1–TI5 – question 13) using concrete and objective situations were
scaled. Responses under operational countermeasures (CI1–CI16 – question 12) were graded using a five-point Likert
scale. Considering the objectivity of the statements, a percentage of frequency distribution on each scale item was
undertaken, including mean score responses and standard deviation (SD) (presented in Table 3) to explore the data.
Overall, respondents displayed a wide spread in their mean score responses ranging from 1.45 to 4.08,
suggesting lower to moderate support for most of the survey questions (see Table 3). The mean scores for organi-
zational system variables (SI1–SI7) ranged from 1.73 to 2.05 and stakeholder relations (RI1–RI4) from 1.48 to 2.22,
indicating a moderate support for survey items. However managerial responses to survey items under the opera-
tional countermeasure (CI1–CI16) ranged from 1.85 to 4.08, indicating respondents either supported or completely
not supported items under operational measures. Finally the variable environmental tracking received a close mean
score response of 1.91–1.99, indicating consensus amongst respondents.

Developing Estimates of Input–Output Data

Input–output data as indicators of OPIs use different quantitative metrics/units to measure the resources used
(input – oil, gas, electricity, water and paper use) and waste discharged (output – industrial waste disposal, CO2,
SOx and NOx emission) by companies across four categories: material use, energy consumption, non-product out-
put and pollutant releases (Ditz and Ranganathan, 1997). Following Xie and Hayase (2007) we used the environ-
mental intensity change index in our survey to measure OPIs. However, due to the inability to collect relevant
data (respondent did not provide any information about these questions) on these indicators an estimated value
on the input and output data was introduced in the study. Considering the significance of these indicators in mea-
suring OPIs (operational performance indicators) and in applying the EPM model as the final objective of this study,
estimation of the values of input–output data based on the responses received from other items in the survey was
undertaken. Responses to survey items under operational countermeasures and environmental tracking were used
to estimate the input and output of sample companies. Rubin (1976), Chin et al. (1996) and Royston (2005) all use
imputation methods to predict the values of missing data/responses within a variable.
This involved computing new variables in SPSS. The study proposed that the summation of both these variables
can help predict resources used and waste discharged by companies in their regular course of operation. However,

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
318 A. Bhattacharyya and L. Cummings

Indicators 1 2 3 4 5 Mean (SD)

SI1 0 0 37.3 30.00 32.7 2.05 (0.84)

SI2 0 0 55.3 24.7 20.0 2.05 (0.67)
*
SI3 0 0 24.0 8.0 68.0 1.56 (0.86)
SI5 0 0 18.7 20.7 60.7 1.58 (0.79)
SI6 0 0 14.7 12.7 72.0 1.45 (0.82)
SI7 0 0 30.7 11.3 58.0 1.73 (0.90)
*
RI1 0 0 13.3 21.3 65.3 1.48 (0.72)
RI4 2.7 13.2 18.7 34.0 31.3 2.22 (1.11)
CI1 60.7 6.7 17.3 7.3 8.0 1.95 (1.34)
CI2 65.3 7.3 13.3 4.7 9.3 1.85 (1.34)
CI3 47.3 13.3 13.3 10.0 16.0 2.34 (1.53)
CI4 20.0 6.7 2.0 22.0 49.3 3.74 (1.59)
CI5 55.3 11.3 6.7 9.3 17.3 2.22 (1.59)
CI6 22.0 10.0 16.7 22.0 29.3 3.27 (1.52)
CI7 44.0 10.7 15.3 14.0 16.0 2.47 (1.54)
CI8 24.0 14.0 14.0 10.0 38.0 3.24 (1.64)
CI9 22.7 9.3 18.7 19.3 30.0 3.25 (1.53)
CI10 16.7 7.3 16.7 23.3 36.0 3.55 (1.46)
CI11 36.7 17.3 8.7 13.3 24.0 2.71 (1.63)
CI12 25.3 12.0 16.0 23.3 23.3 3.07 (1.52)
CI13 24.7 13.3 19.3 13.3 29.3 3.09 (1.56)
CI14 10.0 6.0 9.3 15.3 59.3 4.08 (1.35)
CI15 22.7 8.7 12.7 18.7 37.3 3.39 (1.59)
CI16 19.3 12.0 16.0 16.7 36.0 3.38 (1.54)
TI1 0 0 12.0 67.3 20.7 1.91 (0.57)
TI2 0 0 12.7 68.0 19.3 1.93 (0.56)
TI3 0 0 10.7 73.3 16.0 1.95 (0.52)
TI4 0 0 13.3 72.7 14.0 1.99 (0.53)
TI5 0 0 10.0 74.0 16.0 1.94 (0.51)

Table 3. Percentage responses by Australian managers on a five-point descriptive scale (%)

*Responses to SI4, RI2 and RI3 are categorical and hence will be discussed in the paper.

estimated values are useful to run the CEP model and predict validity. Rubin (1976), Chin et al. (1996) and Royston
(2005) all use imputation methods to predict the values of missing data/responses within a variable. It is a common
practice to use imputation methods, especially to predict the values of missing data/missing responses within a var-
iable. For example, if we use SPSS data in AMOS software we are required to predict the missing data by using an
imputation method. The process through which imputation of the new variable takes place is called the interaction
effect. The interaction effect is also widely used to predict moderation effects in regression. We took the support of
these two techniques and took the measure one step further, and suggested an estimate of input–output data using
equations in the paper. The study was unable to judge whether the missing data are random or follow a standard
pattern to interpret the validity of the estimated data. Xie and Hayase (2007) also commented that it is hard to
get the information on those questions related to input and output used in the study.. Hence equations and an
imputation process are a better solution to predict the validity of data and test the CEP model.

Factor Analysis and Construct Reliability of the Factor Measures

Factor analysis with principal component extraction and varimax rotation was undertaken on the variables OS, OCM
and ET to explore the underlying dimension or factors. A Cronbach alpha test was undertaken to test the internal
consistency or reliability of the items in order to achieve an adequate measure of each variable. However, before

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 319

conducting the analysis several diagnostic tests were performed to ensure that valid conclusions are drawn based on the
factor analysis. Bartlett’s test of sphericity and the Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy were
also performed to determine the factorability of the matrix. The factor analysis for stakeholder relations (RI1–RI4)
was not undertaken in the study, given the low response rate for items RI2 and RI3 in the study. Hence only RI1 and
RI4 were objectively measured using a Likert scale. Items were renamed RI1 – ‘environmental information’ – and
RI4 – ‘volunteer work’ – based on their item description as representing the two factors under stakeholder relations.
The factor analysis revealed that ‘organizational system’ consisted of two factors, which collectively explained 65% of
the total variance (see Table 4). Factor one consisted of three items (SI5, SI1, SI6) with the range 0.61–0.78. This factor
was named ‘environmental system’, because items represented the system of environmental accounting practice (SI5),
organizational target (SI1) and auditing (SI6). The second factor, ‘environmental awareness’, consisted of three items
(SI3, SI2, SI7) with the range 0.78–0.88. Items under operational countermeasures consisted of four factors, which
explained a variance of 72.14%.
Factor one (operational usage) consisted of five items (CI14, CI8, CI4, CI2, CI5) with high loading (0.67–0.74). The
second factor (products), with items CI12, CI9, CI7 and CI11, also ranged from 0.62 to 0.77. This is because all items
in this factor represented an aspect related to a product, such as product recycling (CI12), product life cycle (CI9),
market environmental benefits of product (CI7) and checking suppliers’ EMSs for making products (CI11). Factor
three, ‘hazard management’, consisted of three items (CI16, CI6 and CI15) with a range from 0.61 to 0.76. The
remaining items either cross-loaded or showed values less than 0.3, indicating the fourth factor was irrelevant.
The final variable, environmental tracking, constituted two factors that explained 56.94% of the variance. Factor
one consisted of items TI4 (Tracking scope of water drainage) and TI5 (Tracking scope air and water pollution), and hence
was named ‘water pollution’, based on item commonality. Factor two consisted of three items: TI1 (Tracking scope of
energy use), TI2 (Tracking scope of resource use) and TI3 (Tracking scope of industrial wastes). Based on these factor
results, composite scales were created for the data in order to test the full CEP model (see the next section).

The Relationships Between the CEP Measures

The final stage of the analysis assessed the correlation between all factors relating to EPM and OPM. This section is
concluded by modelling the relationship between each of the factors of EPM and OPM to CEP by drawing a latent
construct1 using AMOS software. In this study the latent construct CEP is measured by responses to two factors:
EPM and OPM (see Figure 2). Variables EPM and OPM are second-order latent constructs measured by their
first-order latent factors. In this way EPM is measured by its first-order latent factors of OS, SR, OCM and ET.
OPM is measured by input and output data. The first-order factors are measured by observed variables or reflective
indicators, represented by rectangles in Figure 2. In this sense the latent constructs are independent variables and
the reflective indicators are dependent variables. The following discussion is on the correlation between the factors
identified in the data.
The correlation coefficient amongst the 13 factors is shown in Table 5. This table indicates that organizational
system (represented through factors environmental system and environmental awareness), stakeholder relationship
(environmental information and volunteer work), operational countermeasures (operational usage, product and haz-
ard management) and environmental tracking (water pollution and other resources) all show positive and significant
correlations with each other. The result is in line with the findings of Xie and Hayase (2007). However, the input
and output variables (EEU, ERU, EIO, EGO and EPR) showed negative and insignificant correlation with the two
factors of environmental tracking. The result contradicts the findings of Xie and Hayase (2007) that the correlation
between inputs and outputs was positive and statistically significant (at the 5% level).
This finding indicates that environmental tracking used by companies cannot predict the level of resource input
and waste discharged through the production process. Despite the negative correlation between these factors, the
study retains all 13 factors to predict the contribution of each of the factors to the final CEP model.

1
A latent construct is the operationalization of a construct that is not directly observed but inferred on the basis of the measured indicators or
surveyed items underlying that latent construct (Byrne, 2009).

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
320 A. Bhattacharyya and L. Cummings

Factor 1 Factor 2 Factor 3

Organizational system
Environmental system
SI5: Environmental accounting system .78
SI1: Environmental target .61
SI6: Environmental auditing .61
Reliability (Cronbach’s alpha) .82
Environmental awareness
SI3: Environmental committee .88
SI2: Adoption scope of ISO 14001 .86
SI7: Environmental education .78
Reliability (Cronbach’s alpha) .90
Operational countermeasures
Operational usage
CI14: Use risk management & OHS manuals .74
CI8: Use of recycling during production process .65
CI4: Use energy saving device at work .62
CI2: Use wind power renewable energy .68
CI5: Use environmental friendly motor vehicles .67
Reliability (Cronbach’s alpha) .89
Product
CI12: Recycling of products at the end of their life .77
CI9: Lengthen PLC for overall energy consumption .69
CI7: Market the environment benefits of products .64
CI11: Checking suppliers’ EMS before purchases .62
Reliability (Cronbach’s alpha) .71
Hazard management
CI16: Check hazard mgmt systems .76
CI6: Reduce harmful effects on the environment .67
CI15: Use training programmes for env. disaster mgmt. .61
Environmental tracking
Water pollution
TI4: Tracking scope of water drainage .83
TI5: Tracking scope air and water pollution .74
Reliability (Cronbach’s alpha) .60
Other resources
TI1: Tracking scope of energy use .72
TI2: Tracking scope of resource use .67
TI3: Tracking scope of industrial wastes .55
Reliability (Cronbach’s alpha) .68

Table 4. Factor analysis data. N = 150

Figure 2 shows the findings of this procedure. The variable EMP had a higher percentage of variance explained in
operational countermeasures ( β = 0.99 with critical ratio = 21.24 at ρ ≤ 0.001) followed by environmental tracking
( β = 0.58 with critical ratio = 12.36 at ρ ≤ 0.001) and stakeholder relations ( β = 0.57 with critical ratio = 5.90 at
ρ ≤ 0.001). The factor ‘organizational system’ explained the least percentage of variance (10%) in EMP ( β = 0.10
with critical ratio = 12.41 at ρ ≤ 0.001). This finding suggests that, for Australian managers, actions and measures
adopted by their company (operational countermeasures) and actions taken to track environmental results (environ-
mental tracking) and the interaction between the company and its various stakeholders were more significant in
determining EMP than changes made in organizational design (organizational system).

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 321

Figure 2. Testing the EPM model

1 2 3 4 5 6 7 8 9 10 11 12 13

1. Env_System 1
2. Env_Awareness 0.25**
*3. Env_Information 0.25** 0.17*
*4. Volunteer_Work 0.74 0.37 0.17
5. Operational_Usage 0.14 0.09 0.24 0.44**
6. Product 0.22** 0.08 0.63* 0.36** 0.48**
7. Hazard_Mgmt 0.04 0.09 0.16 0.35** 0.42** 0.48**
8. Water_Pollution 0.22** 0.28** 0.53 0.09 0.31 0.65* 0.20*
9. Other_Resources 0.12 0.26** 0.18 0.58 0.22** 0.19* 0.32** 0.26**
10. EEU 0.15 0.21* 0.22** 0.25* 0.38** 0.35** 0.14 0.12 0.14
11. ERU 0.17* 0.52 0.02 0.55** 0.78** 0.47** 0.64** 0.16* 0.18* 0.31**
12. EIO 0.87 0.53 0.63 0.47** 0.56** 0.76** 0.43** 0.43 0.11 0.32** 0.47**
13. EGO 0.85** 0.12 0.28 0.42** 0.45** 0.81** 0.37** 0.59 0.12 0.26** 0.46** 0.58**
14. EPR 0.25* 0.19 0.23 0.65** 0.48** 0.48** 0.56** 0.04 0.69* 0.58** 0.76** 0.35** 0.39**

Table 5. Correlations amongst EMP and OPI factors of Australian managers

*Represents items RI1 and RI4 under stakeholder relationship.
Correlation significant at the 0.01 level (two tailed) is indicated by **.
Correlation significant at the 0.05 level (two tailed) is indicated by *.

The CEP variables showed equal interest in both EMP and EOP, with variances of 0.56% and 0.54% evident from
β = 0.56 with critical ratio = 11.23, and β = 0.54 with critical ratio = 11.75 at ρ ≤ 0.001. Thus Australian managers
considered both EMP and EOP to be equally important in determining CEP. Overall the CEP model revealed good
R2 in the range of 0.81–0.72 and low standard errors, indicating a good model fit to the data.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
322 A. Bhattacharyya and L. Cummings

Discussion and Conclusions

The study explores the environmental performance evaluation of Australian managers and seeks to determine the
extent to which companies in various industries measure environmental performance across various indicators de-
veloped for third-party performance evaluation. Environmental performance of companies in environmentally sen-
sitive industries has been evaluated employing a hierarchical framework, which identifies the key factors of (i) EMP
and (ii) EOP that characterize CEP measurements. The result indicated that there were multiple dimensions to mea-
sure under an organizational system as opposed to ideally a single factor. This result also supported the fact that
there is no single model that can be effectively used in different geographical locations due to differences between
companies from various industry sectors, as concluded by previous authors such as Ilinitch et al. (1998) and Xie and
Hayase (2007). Xie and Hayase (2007) proposed the use of the EICI as a measure of OPIs. Their result confirmed
that the EICI and the evaluation based on it are comparable across companies from different sub-sectors. The
unavailability of input and output data did not allow the use of EICI as a measure of OPI. Thus, deference in orga-
nizational operational style and environmental regulations also hinder the effective use of one model. Xie and
Hayase (2007) also commented that, given the differences in organizational culture and regulatory environment
between companies from different regions, alternative measurement frameworks should be applied.
The PCA with the MPIs and OPIs provided evidence that CEP consists of two dimensions, which can be
interpreted as EMP and EOP respectively. These two dimensions (EMP and EOP) are interdependent because input
and output (which describe EOP) are derived from operational countermeasures and environmental tracking. This
finding contradicts the findings of Xie and Hayase (2007), which reported that CEP consists of two dimensions,
which can be interpreted as EMP and EOP respectively, but these two dimensions are independent from each other
rather than interdependent as argued by this study. This difference in the result could be due to the nature of the
OPI (input and output) items’ value. The current study uses a computed value of OPIs, whereas Xie and Hayase
(2007) used the actual value. Furthermore, Xie and Hayase (2007) use Japanese data in a single industry, the elec-
trical machinery and instrument manufacturing sector, which has had the highest growth rate in Japan since the
1980s and is also proactive in environmental management. This study uses Australian data from the chemical, in-
dustrial engineering and pharmaceutical & biotech industries. Differences between the studies may partly be attrib-
utable to both country and industry effects, in that Japanese organizations are highly rigid and structured, and
Japanese managers may therefore have a higher expectation threshold as to what constitutes ‘proactivity in
implementing operational countermeasures’ than their Australian counterparts.
Our results imply that corporate efforts in environmental management will lead to good operational performance.
This result also contradicted the findings by Xie and Hayase (2007), which reported that corporate efforts in environmen-
tal management may not necessarily lead to good operational performance, but concur with the theoretical argument that
a company’s efforts in environmental management affect its operational performance.
Results indicated that EMP is more dependent on its organizational system and stakeholder relations than opera-
tional countermeasures and environmental tracking. Australian managers consider both environmental manage-
ment performance and environmental operational performance to be equally important in determining CEP.
Two possible explanations can be made for this finding. First it is possible that companies that are proactive in
environmental management may aim to improve their reputation and moderate the pressures from various
stakeholders rather than to actually reduce their environmental loads (Jung et al., 2001). This is consistent with
legitimacy theory predictions that maintaining legitimacy requires policing and minimizing organizational activi-
ties that result in negative communications to relevant audiences (Mobus, 2005). Australia has active compliance
and enforcement mechanisms at state and federal levels including under the Environment Protection and Biodiversity
Conservation Act 1999 (the EPBC Act). There are civil and criminal penalties, remediation orders and determina-
tions, and enforceable undertakings. Whilst maintaining legitimacy toward stakeholders is important, more critical
lessons for Australian organizations with respect to environmental management and operational performance are
twofold. In addition to the need to avoid legislative and judicial penalties and costs associated with poor environ-
mental performance, companies also need to continually be aware of cost savings that can be obtained through a
greater alignment between managerial and operational strategy on the environment. Commitment to the adoption
of new environmental systems by management needs to be reinforced through a commitment to resource, imple-
ment and review environmental systems for effectiveness.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 323

The organizations’ powerful stakeholders such as institutional investors are a known audience to whom man-
agers will direct pragmatic legitimation efforts. However investors increasingly are able to see through attempts
to legitimize through ‘greenwash’, whether this be to underplay genuine concerns over possible environmental lit-
igation that would heighten the overall risk to the organization, or overstating the benefits of environmental initia-
tives that are in essence ephemeral in terms of improving organizational value. Legitimacy theory predicts tactics
such as consistent and predictable exchange behaviour for maintaining legitimacy status with pragmatic stake-
holders (Mobus, 2005). Managers will direct moral legitimation efforts towards environmental public interest
groups, small investors and the environmentally conscious general public, as these stakeholders are concerned with
’doing the right thing’ and the social contract. Legitimacy theory predicts that communicating environmental re-
sponsibility is a legitimacy tactic to avoid the emergence of a legitimacy crisis.
Small investors, environmental public interest groups and the environmentally conscious general public grant an
organization a level of performance legitimacy. However, it is reasonable that some stakeholders relax their scrutiny
and are satisfied with ongoing symbolic representations of environmental responsibility as a basis for continuing
legitimacy (Mobus, 2005). It may take more time for companies to actually reduce their environmental load. In
other words, at present most companies devote themselves to environmental management; in future, as the EMS
is utilized effectively and efficiently, improvements in operational performance may appear (Xie and Hayase,
2007, p. 166).
It is critical that organizations incorporate stakeholders into environmental decision making within the organiza-
tion. Instead of the need to demonstrate legitimacy through external means, legitimacy is inherent within the deci-
sion making process through policies, processes and actions. Initiatives such as (1) employee training programs, (2)
the capture, use and review of key environmental performance data, (3) establishing clear lines of authority, (4) for-
mally designating staff to oversee both managerial and operational performance and (5) organizational participation
in environmental information networks are all critical in ensuring effective environmental performance at any level,
regardless of industry or location.
The results shows that organizations incorporated various indicators and measurement items related to organi-
zational systems (environmental auditing adoption of ISO 1400), stakeholder relations (environmental disclosure
community contribution) and operational countermeasures (countermeasures against global warming, and counter-
measures against environmental issues in process/product design) when seeking to deliver favourable outcomes for
stakeholder interests. These further indicate that organizations are keen to maintain their pragmatic and/or moral
legitimacy. From this theoretical perspective differences in organizational cultural attitudes and environmental reg-
ulations hamper the effective use of one single model in different contexts. Given the differences in organizational
culture and regulatory environment among organizations from different regions, alternative measurement frame-
works should be applied. A broadened view of legitimacy theory provided by Suchman’s (1995) framework suggests
that CSR may be an example both of corporate actors engaging in the process of influencing the cultural/institu-
tional definition of environmental performance and of a proactive tactic to gain and maintain legitimacy by concur-
rently demonstrating conformity within that definition (Mobus, 2005, p. 510).
Xie and Hayase (2007) developed an operational EPM model and proposed to use the EICI as a measure of OPIs.
Although this is an improvement upon the measures used by previous studies, it was not feasible to use the EICI as
a measure of OPIs because of the non-availability of specific data. Non-availability of operational performance data is
a common problem in developed economies also. The EICI measure has also been criticized as being unfair to those
companies who have greatly improved their performance before the base year, because even if those companies
make similar or greater efforts during the evaluated period, they have difficulty in demonstrating a significant im-
provement in their performance, whilst previous underperformers can show significant improvement by making
the same or even less effort during the same period (Xie and Hayase, 2007).
The study is limited by the use of imputation in analysis and the use of estimated values on the input and output
indicators of OPIs. As we have estimated the values based on the responses of existing respondents, we do not vi-
olate any theoretical underpinning of this study. However, this study is a constructive approach in overcoming this
practical difficulty. As there is no single suitable model, and given the difficulties in selecting the right measure of
evaluation and collecting the required data, it would be prudent to use different measures and methods for environ-
mental performance evaluation in emerging economies such as India. Given the contemporary nature of environ-
mental performance, research future studies may further explore alternative measures and methods.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
324 A. Bhattacharyya and L. Cummings

References

Ashforth BE, Gibbs BW. 1990. The double-edge of organizational legitimation. Organization Science 1(2): 177–194.
Azzone G, Noci G. 1996. Measuring the environmental performance of new products: an integrated approach. International Journal of Production
Research 34(11): 3055–3078.
Azzone G, Noci G, Manzini R, Welford R, Young W. 1996. Defining environmental performance indicators: an integrated framework. Business
Strategy and the Environment 5(2): 69–80.
Branco MC, Rodrigues LL. 2006. Corporate Social Responsibility and Resource Based Perspectives. Journal of Business Ethics 69(2): 111–132.
Byrne B. 2009. Structural Equation Modeling with AMOS: Basic Concepts, Applications and Programming. Routledge: New York.
Carroll AB, Buchholtz AK. 2006. Business & society: Ethics and stakeholder management (6th ed.). Manson, OH: Thomson South Western.
Chin WW, Marcolin LB, Newsted PR. 1996. A partial least squares latent variable modelling approach for measuring interaction effects: results
from a Monte Carlo simulation study and voice mail emotion/adoption study. In Seventh International Conference on Information Systems.
December 16-18, Cleveland, Ohio.
Curkovic S. 2003. Environmentally responsible manufacturing: the development and validation of a measurement model. European Journal of
Operational Research 146(1): 130–155.
Deegan C, Rankin M, Tobin J. 2002. An examination of the corporate social and environmental disclosures of BHP from 1983-1997: a test of
legitimacy theory. Accounting, Auditing & Accountability Journal 15(3): 312–43.
Ditz D, Ranganathan J. 1997. Measuring Up: Toward a Common Framework for Tracking Corporate Environmental Performance. World Resources
Institute: New York.
Eckel L, Fisher K. 1992. Environmental performance measurement. CMA Magazine 66(2): 16–23.
Elkington J. 1994. Towards the sustainable corporation: win–win–win business strategies for sustainability. California Management Review 36(2):
90–100.
Freeman RE, Harrison JS, Wicks AC, Parmar BL, de Colle S. 2010. Strategies Stakeholder theory: The state of the art. Cambridge University
Press: Cambridge.
Gnanadesikan R. 1997. Methods for Statistical Data Analysis of Multivariate Observations. Wiley: New York.
Hair JF, Anderson RE, Tatham RL, Black WC. 1998. Multivariate Data Analysis. Prentice Hall: Upper Saddle River, NJ.
Hall J, Wagner M. 2012. Integrating sustainability into firms’ processes: performance effects and the moderating role of business models and
innovation. Business Strategy and the Environment 21: 183–196.
Ilinitch AY, Soderstrom NS, Thomas TE. 1998. Measuring corporate environmental performance. Journal of Accounting Public Policy 17(4/5): 383–408.
International Code on Market and Social Research. http://www.esomar.org/index.php/codes-guidelines.html [22 April 2008].
ISO.1999. ISO14031: Environmental Management – Environmental Performance Evaluation – Guidelines. 2013. ISO: Geneva.
James P. 1994. Business environmental performance measurement. Business Strategy and the Environment 3(2): 59–67.
Jung EJ, Kim JS, Rhee SK. 2001. The measurement of corporate environmental performance and its application to the analysis of efficiency in oil
industry. Journal of Cleaner Production 9(6): 551–563.
Kokubu H, Onishi Y, Higashida A, Noda A. 2002. An analysis on the contents and determinant factors of Japanese companies’ environmental
reports. Annual Report of Society of Environmental Economics and Policy Studies 7: 83–95.
Kolk A, Mauser A. 2002. The evolution of environmental management: from stage models to performance evaluation. Business Strategy and the
Environment 11(1): 14–31.
Lo SF. 2010. Performance evaluation for sustainable business: a profitability and marketability framework. Corporate Social Responsibility and
Environmental Management 17: 311–319.
Metcalf KR, Williams PL, Minter JR, Hobson CM. 1995. An assessment of corporate environmental programs and their performance measure-
ment systems. Journal of Environmental Health 58(2): 9–17.
Mitchell RK, Agle BR, Wood DJ. 1997. Toward a theory of stakeholder identification and salience: Defining the principle of who and what really
counts. Academy of Management Review 22(4): 853–886.
Savage GT, Nix TW, Whitehead CJ, Blair JD. 1991. Strategies for assessing and managing organizational stakeholders. Academy of Management
Executive 5(2): 61–75.
Mobus JL. 2005. Mandatory environmental disclosures in a legitimacy theory context. Accounting, Auditing and Accountability Journal 18(4): 492–517.
Nakao Y, Amano A, Matsumura K, Genba K, Nakano M. 2007. Relationship between environmental performance and financial performance: an
empirical analysis of Japanese corporations. Business Strategy and the Environment 16: 106–118.
Olsthoorn X, Tyteca D, Wehrmeyer W, Wagner M. 2001. Environmental indicators for business: a review of the literature and standardization
methods. Journal of Cleaner Production 9(5): 453–463.
Palazzo G, Scherer AG. 2006. Corporate legitimacy as deliberation: A communicative framework. Journal of Business Ethics 66(1): 71–88.
Royston P. 2005. Multiple imputation of missing values: update. The Stata Journal 5(2): 1–14.
Rubin BD. 1976. Inference and missing data. Biometrika 63(3): 581–592.
Schaltegger S, Synnestvedt T. 2002. The link between ’green’ and economic success: environmental management as the crucial trigger between
environmental and economic performance. Journal of Environmental Management 65: 339–346.
Sharma S. 2009. The mediating effect of information availability between organization design variables and environmental practices in the
Canadian hotel industry. Business Strategy and the Environment 18: 266–276.
Suchman MC. 1995. Managing legitimacy: strategic and institutional approaches. Academy of Management Review 20(3): 571–610.
Thoresen J. 1999. Environmental performance evaluation – a tool for industrial improvement. Journal of Cleaner Production 7(5): 365–370.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse
Measuring Corporate Environmental Performance of Australian Companies 325

Tyteca D, Carlens J, Berkhout F, Hertin J, Wehrmeyer W, Wagner M. 2002. Corporate environmental performance evaluation: evidence from the
MEPI project. Business Strategy and the Environment 11(1): 1–13.
Wagner M. 2009. Innovation and competitive advantages from the integration of strategic aspects with social and environmental management in
European firms. Business Strategy and the Environment 18: 291–306.
Wagner M, Van PN, Wehrmeyer W. 2002. The relationship between the environmental and economic performance of firms: an empirical analysis of
the European paper industry. Corporate Social Responsibility and Environmental Management 9: 133–146.
Welford R. 1996. Corporate Environmental Management: System and Strategy. Earthscan: London.
Wells RP, Hochman MN, Hochman SD, O’Connell PA. 1992. Measuring environmental success. Total Quality Environmental Management 1(4):
315–327.
Wolfe A, Howes HA. 1993. Measuring environmental performance: theory and practice at Ontario Hydro. Total Quality Environmental Manage-
ment 2(4): 355–366.
Xie S, Hayase K. 2007. Corporate environmental performance evaluation: a measurement model and a new concept. Business Strategy and the
Environment 16: 148–168.
Young CW, Welford RJ. 1998. An environmental performance measurement framework for business. Greener Management International 21(Spring):
30–49.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 309–325 (2015)
DOI: 10.1002/bse